Asian shares braced for China data, Fed speakers

Early action was sluggish following a report on Friday showed U.S. consumer sentiment slumped to a six-month low in May and long-term inflation expectations jumped to the highest since 2011, boosting the U.S. dollar and Treasury yields.

Asian stocks started cautiously on Monday as investors braced for a China policy rate decision and economic data this week, while awaiting a host of U.S. Federal Reserve officials to speak to vindicate market pricing of rate cuts this year.

Early action was sluggish following a report on Friday showed U.S. consumer sentiment slumped to a six-month low in May and long-term inflation expectations jumped to the highest since 2011, boosting the U.S. dollar and Treasury yields.

In emerging markets, the Turkish lira touched a fresh two month low of 19.70 to the dollar as the country appeared headed for a runoff presidential election. The Thai Baht was 0.7% stronger after the opposition secured a stunning election win on Sunday.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.16% lower, while Japan’s Nikkei bucked the trend with a gain of 0.5%, building on the optimism from last week during the earnings season. [.T]

S&P 500 futures slipped 0.2%, while Nasdaq futures fell 0.3%.

Investors are keenly awaiting China’s central bank rate decision on Monday. Market watchers polled by Reuters expect the medium-term policy rate to be left unchanged despite disappointing data last week that fuelled concerns about a global slowdown.

The country is due to report monthly industrial production, retail sales and fixed asset investment data on Tuesday.

“A big year-on-year improvement shouldn’t surprise given it is measured against a stagnant economy that was in lockdown,” said Chris Weston, head of research at Pepperstone.

“However, with China’s data throwing up a few concerns of late – we’ve seen poor import, PPI, and loan data – China’s growth is very much at the heart of market moves,” said Weston.

Also this week, a host of Federal Reserve officials are speaking, with Chair Jerome Powell set for Friday, and could generate plenty of headlines to move the dial further.

Fed Governor Michelle Bowman said on Friday that the U.S. central bank probably will need to raise interest rates further if inflation stays high.

Markets are still seeing this is the peak for Fed funds rates and pricing in 70 basis points in cuts by the end of this year, after the CPI and PPI data last week supported the case of Fed pausing given the slowing inflation.

Joseph Capurso, head of International Economics at Commonwealth Bank of Australia, believes the persistence of U.S. inflation would take out the pricing for near term cuts to the Funds rate, and contribute to a recovery in the dollar in coming months.

The U.S. dollar index was hovering at 102.72 early on Monday against a basket of major currencies, after surging 1.4% last week on global growth concerns, the biggest weekly gain since September.

Very much on investors’ mind was the uncertainty about lifting the U.S. debt ceiling and the return of bank worries. U.S. President Joe Biden expects to meet with Congressional leaders on Tuesday for talks to raise the nation’s debt limit and avoid a catastrophic default.

Concerns about U.S. Congress not raising the debt ceiling on time have created large distortions in the short-end of the yield curve as investors avoid bills that come due when the Treasury is at risk of running out of funds, and pour into alternative issues.

The yield on benchmark 10-year notes was little changed at 3.4700%, after rising 6 basis points on Friday, and two-year yields were flat at 3.9914, having also jumped 10 basis points in during the previous session.

Oil prices were trying to find a footing after tumbling nearly 2% last week on demand concerns. U.S. crude futures were flat at 70.03 per barrel, while Brent crude down 0.1% to $74.13 per barrel.

Gold prices were 0.1% lower at $2,009.49 per ounce.